Hyundai Merchant, ship owners fail to reach deal over charter fee cut

An employee of Hyundai Merchant Marine (HMM) passes by the shipper’s main office in downtown Seoul, Wednesday. HMM failed to reach a deal with foreign containership owners to cut their charter fees. / Yonhap

By Kim Jae-won

Hyundai Merchant Marine (HMM) failed to reach a deal with four key containership owners that troubled shipper chartered vessels from over cutting their fees, raising the possibility that the company will be put under court receivership, creditors said Wednesday.

The Korea Development Bank (KDB), which leads a group of creditors of HMM, said that it is seriously considering receivership as Navios Maritime, Danaos Corp., Container Carriers Corp. (CCC) and Eastern Pacific Shipping (EPS) refused to reduce their fees for the debt-ridden shipper.

Navios, Danaos and CCC are from Greece while EPS is a Singapore-based firm. Representatives of KDB, HMM and the ship owners had a meeting in downtown Seoul. A vice president of KDB took part in the meeting.

“The negotiations are over now. We have no options but to file for court receivership if the ship owners do not cut their fees,” said Park Chan-ho, a KDB spokesman. “We will resume the talks only when we think we really need it.”

Creditors asked the ship owners to cut the fees by 30 percent, arguing this was crucial to keep the cash-strapped company afloat.

“We believe that the ship owners should cut the fees by 30 percent for creditor banks to proceed with debt restructuring of the shipper,” said a director at KDB, asking not to be named.

Instead, HMM made a proposal to the ship owners that half of the lowered charter rates would be compensated for through a stock swap.

The Financial Services Commission said that HMM is paying charter fees four to five times higher than current market rates due to contracts signed a few years ago when demand was high. Charter fees have fallen more than 25 percent from the end of last year, further hurting the bottom lines of shipping companies.

HMM has been struggling with falling freight rates amid a protracted slump in the world economy. HMM and Hanjin Shipping, Korea’s two largest container carriers, posted massive losses in the first quarter.

Hanjin, the bigger shipper by revenue, had a net loss of 261 billion won ($221 million) in the first quarter. Its revenue plunged 25.1 percent year-on-year to 1.59 trillion won, and it suffered an operating loss of 115.7 billion won.

HMM also recorded a net loss of 276.1 billion won during the January-to-March period, with sales declining 18 percent to 1.2 trillion won. The company also suffered an operating loss of 163 billion won.